Investment Guide

Osijek-Baranja County

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How to register your business undertaking

 

Legal forms of registration of a business are numerous:

  • company: private limited company, public limited company, limited partnership, general partnership, economic interest association, subsidiary;
  • craft business: free, qualified, privileged
  • cooperative;
  • family agricultural holding;
  • sole trader etc.

Private limited companies and craft businesses have certain advantages and drawbacks in terms of doing business and thus it is not possible to provide a simple answer as to which form to choose.

 

The advantages of craft business are:

 ·         lower costs of establishing (which is always important to an entrepreneur with no starting capital)

·         simpler bookkeeping (which means lower monthly expenditure for bookkeeping services)

·         quick data change (for e.g. craft address etc.)

 

The advantage of a private limited company is:

 ·       “transferability” of the company (it is a lot simpler to sell ownership shares or the entire company than in case of a craft business)

·       no limitation as to professional qualifications and occupations (an entrepreneur may register any business activity they require, and any other activity subsequently after fulfilling legal obligations),

·       simpler registering of costs (in crafts, the only recognised costs are those actually paid, and in companies cost is everything that has a legally valid invoice recognised as an expense)

·       lower fixed monthly costs (a craftsman monthly pays an advance on income tax and the pension and health insurance contribution, unless these contributions are paid on some other basis, while a company owner does not pay for the contributions unless employed at his/her own company).

 

In the VAT system, a craft and a company act completely differently. The craft pays VAT and deducts advance tax only when an invoice is paid or collected, while a company pays taxes and deducts advance taxes for every issued or received invoice (there are certain variations regarding this, but the system generally works this way). Such system can in a given moment be an advantage, and at other times a drawback:

  • It can happen that an entrepreneur is unable to market their goods or services to a customer unless the former issues an invoice according to which the customer can immediately deduct advance tax (i.e. that the invoice is issued by a company).
  • In cases when an entrepreneur plans to market goods with a longer repayment time limit, craft business would be a better option, since in this case tax is paid only when the invoice or a portion thereof has been charged for.

The choice of registration model is not simple and the decision is best made in cooperation with an expert (accountant, business advisor etc.) who needs to be familiarised with the business plan in order to be able to help make this choice.


 

 

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